Regulator to pass on I.P.O. review powers
The reform-minded chairman of the securities commission prefers the disclosure system so that investors can make up their own minds
Beijing is likely to reform further the mainland's system for share offerings in the next few months.
The China Securities Regulatory Commission (CSRC) plans to relinquish its responsibility in reviewing applications by companies to raise funds.
Two investment bankers with knowledge of the regulator's thinking say it is determined to introduce a disclosure-based system for initial public offerings (IPOs) and share placements.
The commisision would first let the Shanghai and Shenzhen exchanges take responsibility for reviewing all refinancing proposals by listed firms, they said.
"The policy would be implemented either at the end of this year or early next year," one of the bankers said. "It is highly expected that a further reform of the IPO system would follow."
After commission chairman Guo Shuqing took office late last year, the reform-minded banker, formerly chairman of China Construction Bank, has advocated the disclosure-based system used in the United States.
The commission now vets all IPO applications from firms wishing to list on the A-share market. It has to assess an applicant's earnings prospects before granting approval for an IPO.
The tough review procedure has made nearly all IPOs an easy sale because investors believe those companies that qualified for listing are good buys.
However, thousands of subscribers to IPOs have been forced to lick their wounds after some of the firms reported severe profit drops after listing.
The regulator was blamed by investors for their losses because it had failed to identify the underachievers.
At the beginning of this year, the commission, for the first time, released the names of all listing applicants to enhance transparency in the IPO process.
It is widely believed Guo will take further action to build a market-based IPO system.
A disclosure-based mechanism requires applicants to release detailed information about their finances and governance and allow the market to decide whether to invest in them or not.
The commission was not available for comment yesterday.
The regulator began a trial programme in August, allowing the Shenzhen bourse to review refinancing applications by small firms traded on the Nasdaq-like ChiNext market.
The next step the commission could take is to expand the pilot scheme to the whole Shenzhen exchange and in Shanghai.
The exchanges would be responsible for monitoring the release of information by the applicants before granting approval to those who meet the disclosure requirements. If the reform succeeds, the commission is expected to relinquish its role in reviewing IPOs.